McDonald’s Sticks by Meat Supplier OSI After Yum Severs Ties

McDonald’s said it will continue using the Husi division’s other operations in the country. Photographer: Brent Lewin/Bloomberg

July 24 (Bloomberg) -- McDonald’s Corp. is sticking by meat
supplier OSI Group LLC following a health scare in China, even
as fast-food rival Yum! Brands Inc. terminates its relationship
with the producer of chicken, pork and beef.

After Chinese authorities shut down OSI’s Shanghai Husi
Food plant this week for allegedly selling expired products,
McDonald’s said it will continue using the Husi division’s other
operations in the country. While McDonald’s transitions to a
“state-of-the-art facility” in Henan, it plans to rely on
Husi’s Hebei plant.

“We and our suppliers have a decades-long proven track
record of providing safe, quality food to our customers
worldwide,” the Oak Brook, Illinois-based chain said in a
statement. “Husi is taking swift action by investigating what
happened and overhauling its safety procedures. We have been in
direct contact with OSI’s global leaders; as an added assurance
of uncompromised safety, they are sending their top food safety
experts to China to provide expertise on operations.”

The move contrasts with the reaction of Yum, the largest
fast-food business in China. That company, which owns Pizza Hut,
KFC and Taco Bell, terminated its relationship with OSI after a
government probe into the altering of expiration dates. Shanghai
police have detained five people in connection with an
investigation of the meat supplier, the official Xinhua News
Agency reported this week.

Starbucks Decision

Starbucks Corp. also is cutting ties with Husi after it had
to pull chicken-apple panini sandwiches from stores in some
Chinese markets, including Henan, Yunnan, Jiangxi and Guizhou.
The coffee seller is working with all its suppliers to determine
if there are any other connections to OSI.

“We are not working with Husi in China and will not going
forward,” the Seattle-based company said in an e-mailed
statement. Starbucks also said it will make sure “that our
direct suppliers in China do not source any products from any
Husi affiliate in China going forward.”

Shanghai’s Food and Drug Administration sealed off 100 tons
of products from customers of Shanghai Husi, Xinhua reported.
Checks on the company also showed expired meat was involved in
the production of more than 5,100 boxes of nuggets, meat patties
and small beef steaks in June, according to the news report.

The scandal has prompted Yum to cease all procurement from
Aurora, Illinois-based OSI, according to an e-mailed statement.

‘Completely Unacceptable’

“It is difficult to believe and completely unacceptable
that the management of Shanghai Husi, a division of OSI, would
oversee and organize illegal and dishonest operations,” the
fast-food company said. “Yum China unequivocally condemns these
actions.”

Earlier this week, Chinese authorities ordered nationwide
spot checks of restaurants that sourced meat from Shanghai Husi.
The local Dragon TV channel spurred the investigation when it
reported on July 20 that workers repackaged and sold chicken and
beef past their sell-by dates. In addition to McDonald’s, KFC
and Pizza Hut, restaurant chains such as Papa John’s
International Inc. and Burger King Worldwide Inc. were affected.

Still, Yum said it wasn’t relying heavily on Shanghai Husi
before the incident.

“This supplier is not a major supplier of Yum China,”
Louisville, Kentucky-based Yum said in its statement. “KFC and
Pizza Hut have arranged alternative suppliers and we do not
anticipate disruption to KFC restaurants.”

Shortages of certain products at Pizza Huts will only last
a short while, the company said. Yum said it reserves the right
to take legal action against OSI based on the final results of
the government’s investigation.

Japanese Suspension

Japan also suspended food imports from the supplier and
will strengthen safety checks on food entering the country,
Chief Cabinet Secretary Yoshihide Suga said yesterday.

Six years ago, at least nine people in Japan fell ill after
eating poisoned dumplings imported from a food factory in
China’s Hebei province, causing a nationwide health scare in
Japan and straining relations between the two neighbors. A
former worker at the factory was sentenced to life in prison
after pleading guilty to doctoring the products.

OSI, which is based about 25 miles (40 kilometers) from
McDonald’s headquarters in the Chicago suburbs, has apologized
to its customers, calling the case an isolated incident.

Yum said it also plans to stop using OSI in Australia and
the U.S., where it had supplied “a few items” to Pizza Hut and
Taco Bell. McDonald’s, meanwhile, buys chicken, pork, beef and
lettuce from OSI in the Shanghai area, Heidi Barker, a company
spokeswoman, said in an e-mail. The affected products were sold
to McDonald’s locations in China and Japan, not the U.S. or
other countries.

McDonald’s Chief Executive Officer Don Thompson said
earlier this week that the company would deal with the incident
“swiftly and appropriately.”

“We do have audits of our suppliers,” he said on an
earnings conference call. “In this case, we do feel that we
were a bit deceived relative to one of these plants, so we’re
clearly looking at that.”